Senior Citizens Handbook - Financial Decisions

Senior Citizens Handbook - Financial Decisions

Last updated: July 2010

(Chapter 3 Section 2 of Senior Citizens Handbook)

Many people, at one time or another, find themselves unable to handle their financial affairs. This section explains some of the ways in which someone else can be appointed to handle your money and property without the necessity of a guardianship.

Powers of Attorney for Property

What Is a Power of Attorney for Property?

A Power of Attorney for Property (POA) is a document in which you give a certain person the right to handle your finances and make financial decisions on your behalf. For most people, a POA for Property is a good way to make sure that their financial affairs will be handled properly if they cannot handle them personally.

Why You Might Need to Have a Power of Attorney

If a time comes when you are not able to handle your financial affairs, someone else must do so. However, no one else has the legal right to handle your finances unless someone is named as your legal guardian or you have named someone as your agent in a POA. A Power of Attorney is a way for you to decide in advance who will handle your finances on your behalf.

The person you name to handle your affairs is called your "agent."

What the Agent Can Do on Your Behalf

The Power of Attorney can give your agent the authority to make decisions concerning only certain issues, or to make all decisions concerning any necessary financial or property decision. This might include the authority to handle your income and anything else that pertains to your money, your belongings, and your other financial affairs.

The agent's powers can include the power to:

  • Make real estate or personal property transactions;
  • Control all bank (or other financial institution) transactions or accounts;
  • Buy and sell all types of stocks and securities;
  • Open and control safe deposit boxes; 
  • Deal with any type of insurance or annuity policy or transaction;
  • Contribute to or withdraw from any retirement plans;
  • Handle all tax matters;
  • Bring or defend or settle all claims or lawsuits;
  • Conduct all business operations;
  • Borrow money or mortgage property;
  • Handle legacies, bequests, or other estate transactions.

Limits on What the Agent Can Do

As long as you are able to make decisions and express your wishes, you alone have the authority to control your affairs. Your agent does not have the right to override your decisions, but he or she can take those actions needed to implement your wishes. However, as your agent, your agent has the authority to contact third parties, such as banks or other financial institutions, and make decisions regarding your affairs.

The agent does not have any powers that you expressly exclude in the POA. The POA can be drafted to strike out any of the above categories, or to limit them in any way you want.

Example: You can strike out the power to sell a particular piece of property. In addition, you could instruct your agent to only write out your checks to pay your bills for you.

What Your Agent is and is Not Required to Do

The agent is not legally required to exercise the powers that you give in the POA or to assume responsibility for your affairs. This is true regardless of your physical or mental condition. The agent you appoint can decline to act if he or she becomes ill or decides for any other reason that he or she does not wish to handle your affairs. Whenever the power is used, the agent is required to use due care to act for your benefit, according to the terms of the POA.

Can You Name More Than One Agent?

Yes. However, only one person can be your agent at one time. If you name more than one agent, the power to act on your behalf will pass to the second agent, called a Successor, only if the previous agent cannot or will not act on your behalf.

Who Should You Name as Your Agent?

You should only name people you know well and can fully trust. Many people name their spouse, their children, a close relative, or a long-time friend. If your agent mishandles your funds, you may need to go to court to try to get the money back.

Advocacy Tip

Include an "Accounting on Demand" provision to your POA. Such provision authorizes another person to request from your agent proof or documentation of how your money is being spent.

How Long Does the Power of Attorney Last?

Generally, a Power of Attorney will remain in effect until your death, unless you state otherwise in the document. You have the right to end the POA at any time provided that you are competent (you fully understand what you are doing). This can be done by destroying the document or by other means, but it is best to sign a formal written revocation.

As long as you have at least a minimal understanding of what you are doing, you also have the right to change the POA at any time and in any manner by changing your agents, adding additional agents, or changing other terms of the POA. You must make any changes in writing, and you or someone acting at your direction must sign and date the changes.

How to Execute a Power of Attorney

You must sign the document in front of a disinterested witness and a notary public. A disinterested witness is someone who is not entitled by law to receive any of your estate upon your death.

A Power of Attorney is Not a Substitute for a Will

This is a common misunderstanding. A Power of Attorney cannot be used to state who will receive your property upon your death. A Power of Attorney gives your agent the right to handle your affairs during your life, and the agent’s authority ends upon your death.

Do You Need a Lawyer to Prepare a Power of Attorney?

It is wise to have a lawyer prepare a Power of Attorney for you in order to make sure that the POA is properly drafted to deal with your particular financial situation, and to make sure that both you and your agents fully understand what the POA says and means.

Joint Bank Accounts

When you open a joint bank account, you and the other account holders are considered joint owners. This means that any of the joint owners of the account can make deposits, withdrawals, or conduct any other business involving the account. This can be a convenient arrangement if you are unable to get to the bank for some reason.

Example: Any of the people named on the account could take money out of the account to pay your bills for you.

You should think carefully before creating a joint bank account. The law presumes that any money placed in the account is fully available to all of the joint tenants. In other words, each joint tenant has the right to withdraw all of the money in the account without the knowledge or permission of the other account owners, regardless of who deposited the money.

An additional problem arises if one of the joint account holders needs to apply for a governmental benefit program, such as Medicaid. All of the money in the account may be considered available to the applicant, which may result in a denial or reduction in benefits.

A Power of Attorney can be a safer and more effective way to allow someone to handle your bank deposits.

Living Trusts

Another way to arrange for help in managing your finances is to create a legal document known as a living trust (also called an inter-vivos trust). These trusts are also often used as a way to avoid tax liability or to shelter income and assets. See the Section of this Chapter titled “Wills, Trusts, and Estates.”

When you create a living trust, you transfer ownership of some or all of your assets from yourself to the trust. You also appoint a trustee, who is authorized to handle those assets according to the instructions written in the trust.

Example: The trustee could be authorized to provide you with whatever amount of money is needed to meet your monthly living expenses, or just a fixed amount each month.

The trust can provide that you are the trustee, and it can give you broad powers to invest and use the trust fund. If you, as the trustee, become incapacitated, the trust can provide for a successor trustee who would take over these duties.

The living trust will contain instructions for the distribution of your assets upon your death, just as a will would. The primary difference between a living trust and a will is that assets held in trust do not have to go through the probate process. When you set up a living trust, you transfer your assets to the trust, and the trust is considered the owner of those assets. When you die, the trust is still considered the owner of those assets and not you. The assets are then distributed according to the instructions in the trust.

A trust may have other advantages or disadvantages. It is very important to consult with a lawyer in deciding whether a living trust is a good idea for you.

Representative Payees

When a Social Security recipient is unable to handle his or her financial affairs, a relative, friend or nursing home can request that the Social Security payments be paid to them for the benefit of the recipient. This request must include clear proof that the recipient is unable to manage the funds. If the request is granted, checks are sent directly to the representative payee for the benefit of the recipient.

What is the Representative Payee Required to do?

The representative payee must use the money in the recipient’s best interest. In general, the money should be used to pay for the recipient’s basic living expenses.

There are two restrictions on the use of the payment by the representative payee: 

  • Benefit checks must be used to provide for the recipient's current and reasonably foreseeable needs before they are used to pay for any of the recipient's prior debts;
  • The payee must report to the Social Security Administration and account for all payments and all expenditures made by him or her as payee.

One important disadvantage to having a representative payee receive your Social Security checks is that Social Security is not responsible if the payee misuses your benefits. If the payee is not using your money in your best interest, you would have to take action against the payee personally. The only remedy that Social Security will provide in this situation is to appoint a new payee.

For More Information About Representative Payees

Your Social Security office can send you forms for appointing a representative payee and can answer your questions about representative payees. Social Security can also investigate a representative payee who is not using the benefit money in the recipient’s best interest or assist you in changing representative payees.

Illinois Volunteer Money Management Program

The Illinois Department on Aging runs a Volunteer Money Management Program to help low income seniors who need assistance in handling their finances. This program provides a volunteer money manager, who may serve as a bill payer or a representative payee.

In the bill payer program, the volunteer helps a person set up a budget, pay bills, keep track of bank records, intervene with creditors, complete medical forms and handle other issues relating to finances. In the representative payee program, the volunteer receives the individual’s Social Security benefit check directly and then uses this money to pay that individual’s bills and expenses.

This program can be useful to help seniors avoid unnecessary guardianship, and can also help those who are in danger of being financially exploited. Case Coordination Units screen, train, match and supervise the volunteers. Client funds are insured by AARP.

Call 800-252-8966 (toll free) to find the Money Management Program in your area.

Where to Go For More Information

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